12 October 2016: P/E

profitP/E is back. With a Fed’s decision weeks or even months away, investors can concern themselves with other matters. The good thing is that some analysts are returning to the basics and are asking questions like: how much do I pay for a share in relation to the future benefits that I might obtain by buying it? Or, to put it differently, in investor-lingo: what is the Price-Earnings Ratio of a stock? Yesterday, some analysts at Bank of America Merrill Lynch warned that many stocks are reaching valuations last seen during the tech bubble of the late 1990s. If the median P/E ratio reaches levels of 18 and higher, history has shown that investors should be warned. We are very close to 18 at this moment. And the ratio has been stuck in a bandwidth between 16 and 18 for more than three years now. Nothing to be immediately concerned about, between 2003 and 2008 the ratio was within that bandwidth for almost five years before falling to just above 10, but high P/E ratios come with high expectations. And these expectations should one day be fulfilled. If not, stock prices will drop, in most cases: dramatically.

 

white-chapel-logo-smallSuddenly, investors saw a lot of reasons for concern: sliding oil prices, the uncertainty surrounding the US Presidential election, mixed earnings, high P/E-ratios which might not live up to their expectations, etc. The VIX shot up almost 15% and our UVXY ETFs added almost 11%. And that was only day 1 of earnings season… As a result, White Chapel‘s return for the year rebounded to 210%. And, for the first time this quarter, the quarterly return turned green: +1.1%. Our average Annual Return is back above 300%. No signal from White Chapel at the end of yesterday’s trading day, but our model is turning a little less in favor of volatility. However, don’t hold your breath in anticipation of the next signal…

Accumulated capital at close of previous trading day

Return since start

Return this year

Return this quarter

$30,959

+209.59%

+209.59%

+1.1%

Our initial capital was $10,000 at 1 January 2016. Our average Annual Return is 334%.

silhouetten tdgThe Dutch love to ride their bike. There is not a single country in the world (sorry, Denmark) in which the inhabitants own so many bikes per capita: the average Dutch person owns more than one bike (Denmark: 0.8). (We have to admit: the data are influenced by such outliers as Tim, who happens to own five bikes). The Netherlands are covered with cycle paths, cycle routes, cycle lanes, even cycle highways!
Cycle paths often also make great walking paths. That was what René and Tim experienced when they walked from a P+R facility to the Japanese film festival in Rotterdam. These Dutch Guys are used to all kinds of infrastructure which make the Dutch happy cyclist even more happy. But during their walk, while using a cycle path as a walking path, they came across something they had never seen before: a fifty meter long cycle bypass. It can be seen in the picture below. René and Tim could not come up with an explanation for this miraculous piece of cycling infrastructure. Well, maybe there is nothing more to it than what is stated in an advertising slogan that is in high rotation these days in the Netherlands: “Gewoon omdat het kan.” (Just because it is possible.)

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